EMU CommentNeutral ECB, despite signs of weakness

As widely expected, today's ECB policy meeting offered little news compared to the previous policy meeting in March. The ECB left interest rates and forward guidance unchanged. Hence, the bank’s monetary policy stance is unchanged and fairly neutral. Our focus was on possible signs that the ECB views the recent worsening of economic data as challenging the positive growth outlook (graph). ECB president Draghi did acknowledge this and saw incoming information as pointing toward a moderation in growth. This might be due to a pull-back of high growth at the end of 2017, but also due to some temporary factors, he stated. Elsewhere, despite risk to the growth outlook still being seen as balanced, the ECB saw downside risks stemming from rising protectionism as more prominent, whereas developments in FX and other financial markets was not mentioned among downside risks this time around. So Draghi dropped a slight notice of moderation, but the main ECB message was kept unchanged: the outlook for growth confirms confidence in inflation converging toward the target. Draghi specifically said that the ECB's confidence in inflation is unchanged.

The ECB treading water; June more interesting

Summarised, the ECB seems to be treading water for now. We expect the ECB policy meeting in June to become much more interesting, as we will probably have a clearer steer on the recent bout of weakness. Here, we expect economic data to have recovered somewhat and inflation data to suggest that a gradual rise has probably begun. Therefore, it is possible that the ECB will opt for announcing the next step towards normalisation in June, likely in the form of a change in forward guidance. This could either be in the form of a suggestion about how the net asset purchase programme will end later this year or an elaboration on the extended period of time with key interest rates at the present low levels, with the latter being less likely. We expect the ECB to end QE during Q4 this year and raise the deposit rate in Q2 2019.